Challenger sells water stake to hose down debt

By Stephen Shore

23 December 2008 — 12:00am

THE Challenger Infrastructure Fund has sold one third of its 23.4 per cent stake in the British water supplier Southern Water to reduce debt in its portfolio and fund a buyback of its preference and ordinary shares.

The sale is the fourth this year for CIF, which has battled a falling share price and investor calls to boost the value of the fund.

Since January Challenger has sold assets to raise equity, reduce its borrowings and avoid forced sales.

The fund sold a 7.8 per cent stake in Southern Water to an institutional investor for $221.4 million at the weekend. The sale reduced its proportional net debt by $560 million.

Over the year the fund has halved its net debt from $3.4 billion to $1.7 billion, reducing leverage in the fund from 2.8 times to 1.4 times its net asset value.

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The chief executive, Steve Bickerton, said the fund had been looking for opportunities to unload some of its riskier and debt-laden assets since the end of last year. It sold its minority stakes in the British broadcast transmission operator Arqiva and two British gas distribution networks.

"I think some other funds have run into problems because they have been caught out as forced sellers," Mr Bickerton said. "But … we always said we would look to the market and make sure we could get the best price."

Proceeds from the sale will be used to repay half, or $110.67 million, of CIF's redeemable preference shares on issue, to fund an on-market buyback of CIF shares and to explore opportunities within its other assets.

The fund also announced an estimated interim distribution of 12c per stapled security for the six months to December 31.

"I think it's a sign of the strength of our business that while some of our competitors are freezing redemptions, we have been able to pay a shareholder dividend," Mr Bickerton said.

Southern Water accounted for 44 per cent of CIF's portfolio. Its other large holdings include Inexus, a British utility connections and infrastructure provider (31 per cent), and LBC, an operator of tank storage facilities (25 per cent).